Macro Theme:

Short Term SPX Resistance: 5,250

Short Term SPX Support: 5,200

SPX Risk Pivot Level: 5,200

Major SPX Range High/Resistance: 5,300

Major SPX Range Low/Support: 5,000

‣ Market focus is on 4/10 CPI & 4/11 PPI. IV is relatively high into these events, which makes vanna a key flow later this week. As such we anticipate a large equity move <=5,100, or up into 5,300.*

‣ 5,200 is critical support, up from 5,100 on 3/20. Below 5,200 is our risk off indicator.*

‣ 5,300 is our max target into April OPEX.*

*updated 4/8

**updated 3/19

Founder’s Note:

Both ES & NQ futures are flat, at 5,260 & 18,350 respectively.

Key SG levels for the SPX are:

• Support: 5,200, 5,174, 5,147
• Resistance: 5,220, 5,250, 5,265
• 1 Day Implied Range: 0.61%

For QQQ:

• Support: 440, 435, 430
• Resistance: 445

IWM:

• Support: 200, 195
• Resistance: 205, 215

  Call Wall

CPI print is at 8:30AM ET & FOMC Mins at 2pm ET.

Today’s 0DTE straddle is pricing in a 92bps move ($48, ref 5,210 IV 33.5%), which is the highest we’ve seen in recent memory.

The critical levels have been made clear by traders over the last several days. The main area of attraction is the large gamma zone (green bars) from SPX 5,200 to SPY 520 (SPX 5,220), and this gamma is bringing mean reversion to the SPX. This zone is therefore “fair value”.

A market friendly CPI zaps the current implied vol premium & associated vanna flows, which likely pushes SPX higher to a test of the 5,250 to 5,270 zone for today. Above 5,200 we measure relative positive gamma support for the SPX, which indicates supporting hedging flows out in time. In that upside scenario we should see volatility contract this afternoon, wherein attention shifts to PPI, tomorrow.

On this point, CPI is only 1 data points amongst 3 to form a combined narrative out of this week, with FOMC Mins (this afternoon) & PPI (tomorrow). This narrative likely strikes a directional move into Aprili OPEX, next week.

Should the CPI spark a down move in equities, it pushes the SPX below the 5,200 fair value zone. There lurks negative gamma and the prospect of a jump in IV. Its below this zone that our models are “risk off”, and we would anticipate a test of 5,150, today. In a normal environment, we’d posit that such a down move would spark reflexive flows that would result in further selling, however, nothing is normal about this market.

There are two ideas, that are related to this:

• Dips are bought with flows that are simply based on a forward view of hours, if not minutes (i.e. 0DTE).
• Liquidity is most persistently sourced from these short dated flows.

On one hand, we have been seeing rather violent bursts of selling over the last several sessions, as was the case last Thursday and yesterday afternoon. In our opinion these 0DTE participated in these selloffs, but there appeared to be some other flows afoot. However, the dips are bought with heavy-handed 0DTE flows. Consider yesterday afternoon, wherein the SPX jumped ~20 handles into the close as positive delta 0DTE flows flooded in (red box). So, some other flows come in and push the market lower, but those flows turn off and 0DTE is remains in place, buying dips.

It makes sense why traders would buy these dips with 0DTE:

1. Traders with ITM puts want to monetize those positions before they expire at end-of-day
2. 0DTE’s provide a leveraged lotto ticket on mean reversion. Why buy futures/stock when you can express a view with a cheap option?

In this way 0DTE provides an illusion that there are material buyers out there, and/or liquidity is ample. However, these flows are opportunistic and likely to fade if there is a true shift in macro paradigms or a vol event. In such an event, we think there is a risk of a liquidity hole wherein these 0DTE’s fade (or, worse, go directionally with the market) leading to a vacuum. This is what last Thursday felt like.

That brings us to the CPI reaction. We think this market has to be clubbed over the head with a paradigm shift, and that a simply “warm” CPI is unlikely to trigger flows that lead to a large directional move. Yes, there could be a sharp initial move lower, but that is likely met with 0DTE end of day opportunistic dip buying at end of day. Recall – that dip buying has a max 1 day view. If 0DTE serves to push SPX back to the positive gamma safe zone of >5,200, it triggers slightly longer term flows that are market supportive.

Should we close <5,200, risk remains high, and the odds that following sessions exhibit weakness increases. This should be particularly true if equity vol remains elevated (i.e. VIX), and cross asset volatility increases (rates, commodities, etc) as its a signal that larger, non-0DTE flows are starting to shift. If a bid for vol materializes it will run 0DTE over.